Worrying SA trade deficit

South Africa needs to strike the correct balance between imports and exports, by considering both the needs of local retailers who rely on cheaper imports as well as local manufacturers that need to drive exports of products and raw materials, says international trade specialist Adam Orlin.

The CEO of Blur Strata, a firm specialising in providing support to importers, was reacting to trade data released by the South African Revenue Service (SARS) this week. The data showed that South Africa’s trade deficit for March 2013 narrowed to R7.7 billion from R9.52 billion in February and a record high of R24.5 billion in January.

These figures are closely watched as they hold great implication for the South African economy. Too wide a deficit is bad news in reflecting the ability of local industry to compete within the global economy which has implications for local jobs. A run away deficit will also negatively impact the country’s current account deficit which in turn has negative implications for the local currency.

Orlin said if South Africa wants to narrow the trade deficit by a measurable degree, government must identify niches industry to support. He points to the automotive industry support programme as an example of what considered support can do. “We have seen international investment from the automotive industry as a direct result of incentives by the government”.

“What is needed is to have a big emphasis on creating jobs and skills development within these targeted industries. Unfortunately, some products are simply not being made, or are not able to be made, in South Africa. Globalisation and the cheaper production of certain products is a reality and we need to incorporate this into our industrial objectives,” said Orlin.

His comments can be seen as a challenge to the department of trade and industry (DTI) to turn its plans into fast action. Early this month the DTI announced a R5.7bnn export support programme under its Industrial Policy Action Plan (IPAP).

In launching this initiative the minister of trade and industry Rob Davies said South Africa needs to address the challenge of the current account deficit by increasing the export of the country’s value added products. Davies remarked that “Recent trade statistics show that as a country we are importing more than what we are exporting. We have our work cut out to reverse this trend”.

Added Davies “We need to increase our exports, particularly the export of value added products. We need to capture all of the South African market by encouraging the manufacturing, procurement and consumption of the proudly South African products. We need to reduce the volume of imports by giving preference to the SA goods”.

Like other observers including the Nedbank Economic Unit, Orlin expected to see the net trade deficit to remain throughout 2013. “The figures are demonstrating the fact that South Africa is an import country. However, it should also be borne in mind that some companies are importing components that are then used in the manufacture of products,” said Orlin.

While the latest SARS figures show some improvement in the deficit the cumulative deficit for 2013 is still worrying and stood at R41.84 billion compared with R27.57 billion for the same period in 2012.

Nedbank Economic Unit said the smaller than expected shortfall recorded in March is good news, but the monthly data is volatile and do not necessarily point to a sustainable improvement in South African trade.

Nedbank also noted that South African exports should benefit from the current rand weakness. “However, demand conditions remain weak, with recent indicators pointing to slower growth in the USA and China. The weakness in those and other major countries will also depress commodity prices”.

Added to this, said Nedbank, domestic producers face challenging operational conditions given the effects of rising input costs, higher wage demand and the likelihoods of electricity load shedding as the power utility Eskom warned in the past few weeks.

“As a result, exports are not likely to perform well in the months ahead. Imports, however, will continue to benefit from purchases of capital equipment as the government’s large infrastructure development programme continues”.

Nedbank said the better than expected trade numbers should help to ease some pressure on the current account for the first quarter. This could help the rand at least in the short term. “However, these figures are volatile and underlying balance of payment trend trends remain concerning”.

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